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Wake up, America
By ERNEST F. HOLLINGS, former U. S. senator

DEC. 20, 2010 -- Pundits keep analyzing the President trying to get the economy going and create jobs. It's not that the President lectures like a professor. It's not waiting for the recession to end and growth resumes. And it's not the need for more bi-partisanship. Bi-partisanship is our trouble. The President, Congress, Republicans and Democrats in Washington, all agree on tax cuts, deficit spending, defense spending, wars, and chasing contributions for re-election. Worst of all, there's a bi-partisan agreement to avoid competing in the trade war.


A business consultant on "Morning Joe" stated the typical political nonsense: "government doesn't create jobs." He had just won the Malcolm Baldridge Award. He ought to give it back. In globalization with governments competing in a trade war for production and jobs, the United States retreats. The consultant added "small business creates jobs." Small business is not a job multiplier. Manufacture is the job multiplier. Manufacture is the creator of jobs. Manufacture is the engine of growth. Manufacture develops the middle class.

In the last ten years we've lost a third of the nation's manufacture in the trade war to off-shoring. Long before the recession, Princeton economist, Alan Blinder, estimated that in ten years the country would lose 30 million to 40 million jobs to off-shoring. President Obama didn't inherit just a recession. He inherited a financial collapse together with a job collapse from off-shoring.

Stimulation won't do. President Bush increased the debt and stimulated the economy $5 trillion in eight years. In the same period, household debt increased or stimulated the economy another $7 trillion. The Federal Reserve stimulated the economy a trillion dollars in the remainder of 2008. By January 2009, when Obama was sworn in as President, the economy had been stimulated $13 trillion in eight years, and we were losing exactly 799,000 jobs a month. President Obama in two years has now stimulated the economy another $3 trillion and last month unemployment increased. Stimulation is spent. We're losing jobs not only from the recession but because we are not competing in the trade war.

The United States was founded in a trade war. The Mother Country forbade manufacture in the colony and required exports from the colony to be carried in English bottoms. The Boston Tea Party that triggered the Revolution framed a Constitution calling for Congress to regulate trade - not freeing trade. In fact, the forefathers agreed to regulate trade four years before they could agree on first amendment rights. The first bill to pass the United States Congress on July 4, 1789, was a protectionist tariff. We didn't pass the income tax until 1913. We financed and built the United States into an industrial power with protectionism for the first hundred years, causing Teddy Roosevelt to exclaim in a letter: "Thank God I'm not a Free Trader."

"Every excuse in the world is given for the lack of jobs except the trade war. Pundits blame the lack of jobs on education and innovation. We need a lot more education in South Carolina, but we have the skills to produce the "ultimate driving machine" for BMW and Boeing's Dreamliner. And the best of innovation, Intel, has long since left for Ireland, China, and now Vietnam. Persons with graduate degrees can't find jobs. Silicon Valley suffers 11% unemployment. "

-- Hollings

After World War II, Japan started the present trade war by closing its domestic market, subsidizing its manufacture, selling its export at cost, and making up the profit in the closed market. Japan's thrust for market share put General Motors into bankruptcy with Toyota #1. I worked with business in this trade war to protect its domestic production, passing numerous trade bills, only to be vetoed by presidents of both parties because of the Cold War. But when President Clinton passed NAFTA with Mexico, off-shoring began in earnest. And ten years ago, when China entered the World Trade Organization, off-shoring hemorrhaged. Now, Corporate America, instead of fighting free trade, cries "free trade," "protectionism," "don't start a trade war." Globalization is nothing more than a trade war with manufacture looking for a cheaper country to produce. Wall Street, the big banks, the financial houses, the Business Roundtable, and the United States Chamber of Commerce are a fifth column in this trade war. They're not interested in creating jobs in the United States. They're interested in investment off-shore to keep their profits up in the market. The CEOs are not interested in taking on labor worries with domestic production. They want to keep China profits flowing for their golden parachute. Consequently, they oppose getting into the trade war.

If the President enforces trade laws or Congress introduces a trade measure, coming down on their heads will be Tom Donahue of the United States Chamber of Commerce and the Wall Street crowd, contributing to their defeat. So business leadership, the President, the Congress, all join in a charade of "free trade," "don't start a trade war."

Every excuse in the world is given for the lack of jobs except the trade war. Pundits blame the lack of jobs on education and innovation. We need a lot more education in South Carolina, but we have the skills to produce the "ultimate driving machine" for BMW and Boeing's Dreamliner. And the best of innovation, Intel, has long since left for Ireland, China, and now Vietnam. Persons with graduate degrees can't find jobs. Silicon Valley suffers 11% unemployment.

The best example of a President sleep-walking through the trade war is his hectoring CEOs to invest in production and jobs in-country. If you were a CEO, would you invest in-country? The first thing the banker asks is: "Can you meet the China price?" If not, even though your investment succeeds, cheaper imports from China of the same article will soon put you out of business and the loan goes bad. The harsh truth is that in globalization it is difficult to produce for a profit in the United States. In globalization only the government can make it profitable to manufacture and protect Corporate America's investment.

In globalization, the task is for the President and Congress to make it profitable to produce in the United States. Congress can make it profitable and jump-start the economy by eliminating the corporate income tax and replacing it with a 5% value added tax. The corporate tax estimate for 2010 is $156.7 billion in revenues. A 5% VAT reaps $600 billion. Exemptions for the low income for food, health and housing still leaves $350 billion to start paying down the debt. Since the VAT is rebated on export, it promotes exports. Cancelling the corporate tax releases $1 trillion in off-shore profits that can be repatriated tax free to invest in creating jobs in the United States.

The United States now has to import the majority of what it consumes - particularly weaponry. The United States cannot be defended today save the favor of some foreign country. A few weeks ago, the Pentagon was begging Russia for helicopters for Afghanistan. The War Production Act of 1950 guarantees that the troops will always have the equipment to defend. President John F. Kennedy enforced this Act in 1961 to save the textile industry. President Obama could create millions of jobs by enforcing the War Production Act of 1950. The President could immediately exact a 10% surcharge on imports as President Nixon did in 1971 when our trade deficits were a miniscule of the trade deficits today. Section 201 of the Trade Act calls on the President to move when a vital industry like automobiles is endangered. President Roosevelt in World War II called on Chrysler to produce the tanks and General Motors to produce the B-29s. But President Bush refused, and now President Obama refuses, to move when GM was endangered and waited for it to go bankrupt and need a bailout.

Last week, The Economist headlined "The dangers of a rising China." We are not threatened by China's military but its economy. In 1989, after Tiananmen, we obtained a resolution in the General Assembly of the United Nations to investigate human rights in China. China went to its economic friends in Africa and the Pacific Rim, and there has never been a hearing. Weeks ago, China obtained the return of its ship captain from Japan by cutting off rare earth supplies to Japan. Last week, nineteen nations refused to attend the award of the Nobel Peace Prize to Liu Xiaobo because of China's objection. China uses our Good Neighbor Policy while we make wars to control. In globalization, "it's the economy, stupid."

Osama bin Laden said his crusade was in response to a second Crusade against the Muslim world. We prove bin Laden's case by invading Kuwait, Iraq, Afghanistan, Pakistan. Our invasion brought Al Qaeda to Iraq, and our invasion of Afghanistan turns allies in Charlie Wilson's war to terrorists. On 9/11, the State Department reported Al Qaeda was in forty-five countries - but not in Iraq. After Afghanistan we'll still have forty-four countries to go, including the United States. Sixty-eight years ago, we liberated Morocco, Algeria and Tunisia, and they have yet to opt for democracy. In the Muslim world more important than freedom and democracy is tribe and religion. We have spent over nine years force feeding democracy, trying to change a culture militarily, in Afghanistan. Now we ask young America to lose its arms, legs, and lives for five more years to force feed democracy and spread terrorism.

Wake up, America.

Senator Hollings of South Carolina served 38 years in the United States Senate, and for many years was Chairman of the Commerce, Space, Science & Transportation Committee. He is the author of the recently published book, Making Government Work (University of South Carolina Press, 2008).

© 2010, Ernest F. Hollings. All rights reserved. Contact us for republication permission.

About Fritz Hollings

Ernest F. Hollings served the public for 56 years -- 38 years in the United States Senate and as South Carolina's governor, lieutenant governor and a member of the S.C. House of Representatives.

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